Large cap stocks have been dominating small caps throughout the year. Looking at the long-term chart of the S&P 500 Index and the Russell 2000 Index, it’s clear that small caps are lagging behind. The ratio of the Russell 2000 to the S&P 500 is at its lowest since the late 1990s, which could be concerning. However, history shows that the market still had room to grow even when the ratio was at similar levels in the past.
In years where the S&P 500 outperformed the small cap index by 5% or more, the market saw positive returns. This trend suggests that strong performance by large caps is a bullish sign for the overall market. The S&P 500 has historically continued to perform well in the months following such instances, with average returns of almost 12% over six months and 26.5% over a year.
On the other hand, while the returns for small caps in these scenarios are not as impressive as those for large caps, they still show an average return of 9.5% over six months with 80% of returns being positive. This indicates that there is still potential for growth in small cap stocks despite their current underperformance.
Based on the data so far this year, it seems likely that large caps will continue to outperform small caps. DailyBubble believes that investors should not expect a reversal in this trend and that historically, large caps have maintained their lead over small caps in similar situations.